India Industry

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Industrial Growth After Independence
Prior to independence the ownership or control of much of the large private industries were in the hands of managing agencies, which grew under the British system and had access to London money markets. Thus the owners of these managing agencies controlled a major portion of the economy, prior to independence.

But things changed after independence. Parliament enacted a legislation to curb the powers of managing agencies. By 1971 the government had banned the managing agencies. The Industrial Policy Resolution declared in 1948, clearly put forward the goal of the Government's policy with respect to industrialization and classified them into four categories.

Those industries completely owned by the Government e.g. ordinance, atomic energy, railways and any industry of national importance. Certain important industries like coal, iron and steel, aircraft manufacture, ship building, telephone, telegraphs and communications, were given the permission to operate for ten years, at the end of which the government would nationalize them.

A group of 18 specified industries were in control of the central government in liaison with the state governments. The remaining industrial options were left open to the private sector.

Industrial Development & Regulation Act 1951
The act gave complete authority to the government. This resulted in the bureaucracy extending complete control over the industrialization of the country.

They controlled the authorization of capability, whereabouts and growth of any request for manufacture of new products.

They controlled the authorization of foreign exchange expenditure on the import of plant and machinery.

They controlled the authorization for the terms of international joint ventures.

Industrial Policy In 1956
In 1956 a new policy for industrialization was initiated. All basic industries and sensitive industries in India were under the purview of public sector enterprises and were called as category A type of industries. In category B, industries were a joint venture of both public and private enterprises. The remaining industries came under category C, to be under the control of private initiative.

The policy of 1956 for the first time recognized the contribution of small scale industries in the growth of the Indian economy. It laid stress on rational distribution of national income and effective utilization of resources.

Monopolies Commission -1964
The Government of India appointed a monopolies inquiry commission to study the presence and outcomes of concentration of economic power in private sector. The commission observed the presence of monopolistic and restrictive practices in certain key sectors of the economy. The commission recommended the setting up of the Monopolies and Restrictive Trade Practices Commission.

FERA Amendment 1973
The Foreign Exchange and Regulation Act was amended in 1973.This resulted in a tremendous shift in the foreign investment policy of the Government of India. Foreign Investment was allowed in only those industries that were directly into exports.

Restrictions were placed on foreign investments. International companies could hold a maximum of 40% equity. But some industries in the field of advanced technology were given permission for 51% foreign capital.

Industrial Policy 1973
The policy listed out the various appendix 1 industries that could be started by large business houses so that small industries were not driven out of business. The establishment of small and medium industries was encouraged.

Private industries were encouraged to set up production units in rural areas and in backward areas with a vision to give thrust for the economic development of those areas.

Industrial Policy 1977
The focus of this industrial policy was judicious promotion of small scale and cottage industries. The idea of District Industries Centre’s was introduced for the first time. Small industries were encouraged to set up base in rural areas away from the big cities.

Industrial Policy In 1980's
The first step towards liberalization was taken up in the 1980's.The government took corrective steps to vitiate the licensing system and encourage private entrepreneurs.

The following steps were mooted:

Re endorsement of licenses: The scope mentioned in the licenses could be re advocated, only if it was 25% greater than the licensed capacity.

Exemption from licensing for all start ups and for those with an investment worth of Rs2.5 crores in fixed assets and a right to import up to 30% of the total value of plant and machinery.

Foreign equity investment was allowed up to 40%.

Geographical restrictions and investment cap for small industries were removed.

At the time of liberalization the Indian industries were not competitive in the global scenario. They could not face the stiff competition from the foreign industries; hence many industries sold their company to multinational corporations or entered into joint ventures with foreign companies or shut down the business.

At the same time a new wave of service industries emerged, which positioned itself in the outsourcing segment. IT and ITE's industries flourished providing employment to millions of graduates.